Highlights From the Hill, Part II

One significant point that emerged from the testimony of AIG’s Edward Liddy is that the bonuses that have stirred controversy were all, within AIG’s financial products division, retention bonuses, not performance bonuses:

LIDDY: Congressman, I — I think the contracts that you are reading from have to do with performance bonuses. No performance bonuses at F.P., zero. It’s a different issue than the retention bonuses, where we basically said to people, “You have a job. That job’s going to go away after you wind down the book of business that you manage. If you’ll stay”…

(CROSSTALK)

FRANK: So you’re talking about the only bonuses that were paid recently were the retention bonuses?

LIDDY: Yes.
***
Liddy: What we asked them to do was to stay, do a specific amount of work, and if you do that, at the end of that period of time and you’ve done that work, we will give you a retention bonus. That’s what those payments were. So they did the work. They reduced the risk from that $2.7 trillion down to $1.6 trillion. And the American taxpayer is better off because we have less risk.

AIG hired (or retained) employees to supervise and wind down the financial products division’s book of business, then well in excess of $2 trillion. Since the business was being wound down, these jobs were not great career opportunities. So AIG entered into agreements with its employees that if they would stay for a given period of time, they would earn a bonus. The bonuses that fueled the current controversy were paid to employees who held up their end of the bargain by remaining with AIG.

So an employee is promised a bonus if he stays on and works another year in what would otherwise be a dead-end job; in reliance on that offer, he stays and works for a year. Now Congress wants the bonus back. It’s hard to understand how that comports with anyone’s idea of fairness, let alone legality.

Remember when George Bush was “shredding the Constitution?” Ah, those were the good old days! Now we have Congressional Democrats trying to give themselves political cover by advocating patently unconstitutional legislation singling out a few hundred employees of a single company for a “tax” that would reclaim money that they were promised, and earned, with the full knowledge and consent of the Federal Reserve and, it turns out, Congress.